An end to the first national postal dispute for more than a decade is in sight after the executive of the Communication Workers Union yesterday agreed to back a deal with Royal Mail.

The offer, which includes a 6.9% pay increase over 18 months, will be put to a ballot of some 130,000 members. The timing of the ballot is expected to be decided this week.

If the CWU members accept the offer it will bring to a close a damaging dispute that saw postal workers stage a series of strikes this autumn, disrupting mail services, costing the company "tens of millions" of pounds and provoking anger among small businesses.

The dispute centred on pay, pension reform and changes to working practices that Royal Mail argued were essential if it was to modernise its operations to compete with rival postal operators and other communications media. The union said that it was concerned the programme would cost up to 40,000 jobs.

Last night Royal Mail said the CWU's acceptance of the deal meant the company "can now go ahead with essential plans to modernise the business and make it more flexible, efficient and able to compete in the market place".

It said the pay deal, which runs from the beginning of next month, would not cost more than its previous offer of 2.5% from the beginning of April.

"All along we have been clear that to become more competitive we needed flexibility to modernise and we needed to reform our pension scheme because the costs were crippling the company," said Royal Mail's chief executive, Adam Crozier. "This deal, which is within the parameters we clearly set for pay this year, gives Royal Mail a fighting chance of success in the future."

Dave Ward, the CWU's deputy general secretary, said the agreement reflected "the fact that change in the company will only be managed with the union and the workforce. We have made significant gains on pay and related issues and the union's role in negotiating change in the workplace has been strengthened."

The government welcomed the agreement. John Hutton, the secretary of state for Business and Enterprise, said it was a good deal for customers and tax payers. "It will ensure the Royal Mail can continue to modernise and provide services customers want in a competitive market. I am delighted that the Royal Mail and the CWU have reached an agreement and urge members to support their union's recommendation."

Small businesses also welcomed the agreement. Nick Dines, head of communications at the British Chambers of Commerce, said: "This is good news for small businesses in the UK who have essentially been held at ransom by the CWU. The strike has shown that although in theory the monopoly on delivery has been broken the reality is that there is no cost-effective alternative to Royal Mail. Management and the union must ensure that crippling strikes like this do not happen again."